sasol profits up despite R1,6bn loss

Robert Laing

Robert Laing

Sasol's 15percent rise in turnover, operating profit and earnings would have been even better if it had not lost a R1,6billion bet on oil prices.

If Sasol had not hedged - contracted itself to sell fuel at prices which turned out to be far lower than the prevailing price - the synfuel division would have increased its operating profit by 13percent on the back of a 4percent growth in production volumes.

Instead, its coal-to-liquid plants in Sasolburg and Secunda posted a 7percent decline in operating profit. This took their contribution down to 56percent of the group's R14billion operating profit for the six months to December 31, down from nearly 70percent the previous year.

Its local synfuel operation contributed 31percent of Sasol's R56billion revenue in the six months to December 31, 16percent higher than in the 2006 interim period.

Christine Ramon, Sasol's chief financial officer, said its current hedging contracts expire in May. Sasol has not yet decided if it plans to hedge again.

Sasol earns most of its revenue from chemicals, and an upturn in the profitability of these businesses compensated for its synfuel hedging blunder.

Pat Davies, Sasol's chief executive officer, said: "Sasol plays to a very sweet spot right now. Everyone is looking for alternative energy sources, and we have the experience in coal-to-liquids and gas-to-liquids which we can replicate around the world."

Its synfuel international division, consisting of its Oryx gas-to-liquid plant in Qatar, reduced its operating loss to R274million from R366million. Average production was 16000 barrels a day in December, and it is now achieving 20000 barrels on some days.

Sasol bought back 5,9percent of its own shares, resulting in its earnings per share rising faster at 18percent than the 15percent posted. An interim dividend of R3,65 was declared.

Davies said the board approved up to 10percent of shares being bought back. This was done to counter a dilution caused by issuing shares in a black economic empowerment deal announced last year, and also because institutional investors had complained Sasol had a "lazy balance sheet".

Rather than increase its debt, Sasol had decided to reduce its equity to bring its gearing to 32percent.

Given the strong run of Sasol's share price, which has seen it run from under R320 in January to around R415, the share buyback programme has been paused for the time being.

Sasol currently generates a third of electricity, and has ordered a gas turbine, which will generate a further 280MW. It is looking to expand further into electricity generation.

Davies said: "Sasol is South Africa's biggest energy company next to Eskom, so it makes sense for us to look at ways to overcome the electricity crisis in partnership with Eskom and the government."